V3I1P06

Hedging Strategies for Retail Traders: Uncovering the Most Profitable and Reliable Risk Management Techniques

Gagan V

Abstract

This research explores how retail traders, meaning individuals who invest their own money, can use simple hedging strategies to reduce losses in the stock market. With more people entering the market through mobile apps and online platforms, many focus only on making profits and often ignore the risks. As a result, they may make emotional decisions and face large losses when the market drops. The study aims to find out which hedging methods are easy to use, cost-effective, and reliable for retail traders. It focuses on four main strategies: protective puts, covered calls, inverse exchange traded funds (ETFs), and correlation-based hedging. These were tested using paper trading simulations across different market conditions such as rising, falling, and sideways trends. In addition, interviews and surveys were conducted with 25 retail traders to gather real- world insights. The findings show that no single strategy performs best in every situation. Each method has its advantages and disadvantages, but even basic hedging can help reduce losses and bring more stability to trading. The research shows that hedging is not only for professionals. With the right understanding, it can benefit anyone who wants to trade more safely and confidently.

Keywords:

Retail traders, Hedging strategies, Risk management, Paper trading, Protective puts, Inverse ETFs, Survey analysis